Ganesh Rengaswamy of Indavest Ventures/ex-Greylock and co-founder, TravelGuru shared his views on Funding, Valuation and Exits
- raising capital, considerations, valuation techniques, capitalization and structuring, financial models, exit strategy.

Many Indian entrepreneurs due to lack of awareness end up arguing with VCs on some points which are considered basic norms in the industry. In 9 out of 10 caes, entrepreneurs do no know the terms in terms sheet. Entrepreneurs do not do preparation. They need to have educated discussion when it comes to investment.

They need to have basic understanding of typical deal terms such as:

-         target 20-35 % ownership

-         board representation

-         liquidation preference

-         Participation rights (depending on round of funding and company stage)

-         Certain control and veto rights (if needed)

-         Option pool (for management/employees)

When you start off 20 to 30% is set aside for option pool. Prior to 2003, in India  option pool was 10 to 15%. The idea is to attract right talent and retain people. Investor is concerned about scalability of your team.

-         Period of exclusivity to close legal/diligence (45 to 60 days)

Entrepreneurs should look inward and ask if they really need investment? They should not fall into the trap of glamour for VC funding. May be high networth individuals (HNI) is one route to go.

Depending on nature of your business, probably you are better off without the funding!

How do you find HNIs?

It is not structured model. If you got to Angel groups (Mumbai Angels, Indian Angel Network), your business may not be of interest to the angel groups but there will be individual in these groups who may be interested.

Identifying potential VC partners

One has to know the investor he is talking with. Some of the points to consider while seecting a VC to talk to include:

-         Has funds to invest

-         Team track record

-         No directly competitive investments

-         Relevant focus/ability to help

-         Match of size/stage/ geography

Emotional and Passion are two different things. The VC investing in your company should be passionate about your business but not emotional. The entrepreneur should understand the cliché between the two.

- Pradeep Shankar